Hawker Beechcraft to explore options with its jet business

10/18/2012 3:03 PM

08/08/2014 10:12 AM

After failing to reach a deal with Superior Aircraft Beijing, Hawker Beechcraft’s top official said the company is exploring interest that has been expressed by outside parties for its corporate jet business.

“The interest that has been displayed in the jets and still is being displayed in the jets spans from entities that would like to own the product line with the intention of continuing production and development of it all the way to people who would like to own the type designs and the after-market activity for the jets,” Hawker Beechcraft Corp. chairman Bill Boisture said in an interview with The Eagle Thursday.

The company will quickly explore that spectrum of opportunities for the jet production line, Boisture said.

Hawker Beechcraft announced Thursday that the company and Superior Aircraft Beijing could not reach a deal on Superior’s purchase of the company. It now plans to emerge from Chapter 11 bankruptcy as a stand-alone company called the Beechcraft Corp.

“The Superior transaction was a complicated transaction with many facets,” Boisture said. “The summary of it is we could not reach a deal.”

The restructured company, expected to emerge from bankruptcy in the first quarter of 2013, will focus on turboprop, piston, special mission and trainer/attack aircraft, its most profitable products.

It also will focus on its high-margin parts, maintenance, repairs and refurbishment businesses, which have more growth potential, the company said.

What will happen with the Hawker jet line is in question.

Hawker Beechcraft is evaluating its business jet products, “which could include a sale of some or all of those product lines, or a closure of the entire jet business if no satisfactory bids are received,” according to a release from the company

The company filed for bankruptcy protection in May.

Hawker Beechcraft and Superior entered an initial agreement in July for Superior to buy the Wichita company for $1.79 billion. The deal would not have included the defense business.

“We made the decision to proceed with the standalone Plan of Reorganization after determining that despite our best efforts, the proposed transaction with Superior could not be completed on acceptable terms to the company,” Steve Miller, Hawker Beechcraft CEO, said in a statement Thursday morning. “We are disappointed that the transaction did not come to fruition.”

The company, however, protected itself be obtaining a $50 million deposit from Superior that is now non-refundable and stays with the company, he said.

“The go-forward business plan we have developed with our creditors ensures that we will emerge from the process in a strong operational and financial position, with an enhanced ability to complete well into the future.”

One Hawker Beechcraft employee said he was glad the deal with the Chinese fell through.

“It thrills me to see we’re going to be a stand-alone company,” said the employee, who did not want to be identified. “We can get down to a small and lean and basic company again.”

Hawker Beechcraft will soon file an amended Joint Plan of Reorganization with the U.S. Bankruptcy Court outlining the details, the company said.

It plans to schedule a hearing on the adequacy of the plan for Nov. 15.

The company’s key economic stakeholders – including holders of the majority of its secured bank debt and unsecured bond debt – have already agreed to support the plan, subject to court approval, according to information from Hawker Beechcraft.

Under the plan, pre-petition secured bank debt, unsecured bond debt and general unsecured claims will be canceled and holders of the claims will receive equity in the reorganized company.

The plan contemplates full repayment of a $400 million “debtor-in-possession post-petition credit facility,” it said. The company also plans to get a new financing package that will go into effect when it emerges from the bankruptcy.”

“The company has more than sufficient liquidity to complete its restructuring,” it said in a statement.

The plan to go forward with a stand-alone business without the jets was one of three options the company outlined in a scenario outlined in court documents earlier this year.

The strategy would make it easier for the company to be a player in an industry consolidation, said Cowen and Co. analyst Cai von Rumohr.

“Everybody knows the business jets is the problem; the other stuff is the good stuff,” he said.

The big issue is how to shutter the corporate jet business, or as von Rumohr put it “how do we get ourselves unstuck from the business jet business… and how will they liberate this inventory.”

Another question is who stands behind the warranties on the business jets, he said.

Time is not on Hawker Beechcraft’s side to get it done, he said.

The company lost millions in July and August and has a negative cash flow.

“They can’t go forever,” von Rumohr said.

“They’re at the point where they have to have some resolution of the business jet issue by the end of the year so they can be a stand-alone company,” he said.

Hawker Beechcraft has an aging product line, while its competitors have new products coming into the market, von Rumohr said.

The revamped company would be a good fit for a company such as Cessna’s parent company to buy, he said.

“They’re both in Wichita; there’s a very small competitive overlap. But the question is price. They were interested before, but they weren’t interested anywhere close to $1.8 billion,” he said.

Textron CEO Scott Donnelly said in a conference call this week that he continues to “watch what’s going on.” In July he said he would be interested in bidding for the company.

Mayor Carl Brewer and a Wichita delegation in China said they had plans to meet with Superior’s chairman earlier this week. But Superior canceled the meeting on Monday.

Teal Group analyst Richard Aboulafia was never convinced a deal with the Chinese would go through.

“I thought it was kind of a joke, actually,” Aboulafia said. The idea that the investors, which included a municipal government, could find the money to buy it was “somewhere between a daydream and an absurdity.”

The central government in China has money, but spends it sparingly, he said.

“Sometimes it comes through; most of the time it doesn’t,” Aboulafia said. “This is still an industry with very large cash requirements – completely different from what normal investors … are willing to spend.”

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